Insurance policy marketing via banks, or bancassurance as it is known in other countries, is an important part of the UAE’s insurance market, but has been largely unregulated to date. Ms Susan Dingwall and Mr Steven Hadwin of Norton Rose Fulbright LLP look at draft rules which, if implemented, will impose a broad range of requirements on this area of business.
Bancassurance – the offering of insurance products through a bank – is a well-recognised concept. However, in the UAE, regulators prefer to use the phrase “insurance policy marketing via banks” in order to underline the fact that, in the UAE, insurance and banking are separate industries, each subject to their own regulation.
An important part of business
Insurance policy marketing via banks is an important part of the insurance market in the UAE. It has recently been estimated that this area of activity contributes no less than 40% of all premiums earned by UAE insurers.
There are a number of advantages to insurance policy marketing via banks:
• Insurers are able to expand their business cheaply and effectively, by drawing on a bank’s existing customer base;
• Banks are able to offer a broader range of products to their customers, which helps them to maintain and expand their business; and
• Insureds benefit from the convenience of being able to obtain banking and insurance services from one source, in a market where there are few other established means of insurance distribution.
Rules for insurance policy marketing via banks
The importance to the insurance industry of marketing insurance through banks cannot, therefore, be underestimated. In this context, it is perhaps surprising that, to date, there has been little regulation of this sector by the UAE regulators.
However, this looks likely to change following the recent publication by the Insurance Authority (IA) of a set of draft rules entitled “Instructions no. ( ) for the Year 2014 in respect of Conditions of Insurance Policy Marketing via Banks” (the “Rules”). The Rules will, if implemented, impose a broad range of requirements on the conduct of insurance policy marketing via banks.
The Rules will apply to all insurers operating in the UAE and all banks which market, or which are seeking to market, insurance policies in the UAE. It is therefore important that all insurers and banks operating in this sector take note of the Rules and consider whether their business models comply with them.
A summary of some of the key elements of the Rules follows below:
Types of insurance which may be marketed by banks
Articles 3 of the Rules sets out an exhaustive list of the types of insurance products that can be marketed by banks on behalf of insurers. These include, but are not limited to:
• life insurance and family takaful;
• health insurance;
• motor insurance;
• personal accident insurance;
• home insurance; and
• travel insurance.
It will therefore not be possible for a bank to market commercial lines of insurance to its business customers.
Obtaining approval to market insurance policies via banks
Under Article 4 of the Rules, if a bank and an insurer wish to set up such an arrangement, approval will need to be sought from the appropriate regulators.
Firstly, the bank will need to obtain approval for the arrangement from the Central Bank of the UAE. The bank and the insurer will then need to jointly apply for approval from the IA. This application must be supported by a range of documentary evidence, including a declaration by the bank and the insurer that they will comply with the Rules. Following this application, the IA then has discretion to approve the arrangement. In the event an application is rejected, an appeal process exists.
Article 5 of the Rules states that approval by the Authority will then be subject to annual renewal, which will take effect if the bank and the insurer have complied with their obligations under the Rules.
The insurer must be licensed in the UAE
Importantly, Article 7 of the Rules limits marketing of insurance policies via banks to insurers that are licensed in the UAE. This means that if international insurers wish to offer such products, they will have to be written through a local fronting company. UAE insurers may see this provision as an opportunity to expand this aspect of their business, given that participation in the market will be limited to insurers that are licensed in the jurisdiction.
Article 6 of the Rules also states that the insurer marketing policies via banks must have a branch in the Emirate where the bank will be marketing the insurance company’s products. That branch must also be authorised to settle claims, or must have seconded members of staff to the bank who are authorised to settle claims.
Limits on the scope of the arrangement
The Rules provide that the arrangements are not exclusive: an insurer may enter into arrangements with one or more banks and equally, banks may enter into arrangements with one or more insurers. The Rules expressly state that the bank’s role will be limited to being a marketing channel for the insurer’s products and will not extend to acting as a broker or as an agent of the insurer.
Article 7 of the Rules provides that banks will only be permitted to market insurance products to its own customers, including those who have accounts or credit cards with the bank. Further, the insurer cannot delegate its key functions to the bank – including the issuance of policies, the settlement of claims or the payment of compensation.
Article 9 of the Rules provides that the bank must market the insurer’s products separately from its own products. Customers must also be free at all times to obtain insurance from sources other than the bank.
Implementation and transitional arrangements
At present, it is unclear when the Rules will be published in the Official Gazette. The Rules will come into force one year after their publication.
Existing arrangements will remain in full effect following the implementation of the Rules. However, steps will need to be taken to ensure that existing arrangements comply with the Rules following their implementation.
Despite uncertainty as to the date of the Rules’ implementation, it appears clear that marketing insurance policies via banks will in future be subject to much more stringent regulation than at present. Both banks and insurers should begin their preparations for this change so as to ensure compliance with the Rules once they are eventually implemented.
Ms Susan Dingwall and Mr Steven Hadwin are Partner and Associate, respectively, with Norton Rose Fulbright LLP.